2015 (9) TMI 225 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Non deduction of TDS u/s 194J - tax deducted under wrong provision - CIT(A) deleted disallowance - Held that - The issue under consideration is squarely covered in favour of assessee by the decision of CIT(A) vs. M/s. S. K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT wherein the assessee deducted tax u/s. 194C of the Income Tax Act. According to the Assessing Officer, the tax should have been deducted u/s. 194I. He, therefore, made proportionate disallowance u/s.40(a)(ia). The Tribunal held that where tax has been deducted by assessee, though under the wrong provisions, the provision of Section 40(a)(ia) cannot be invoked and Revenue can initiate proceedings u/s.201 for short fall in deduction of tax at source. - Decided in favour of assessee. Disallowance u/s 43B - whether CIT(A) erred in allowing the claim regarding notified area tax liability paid as per provisions of section 43B without considering the fact that any expense in connection with closed business is not an allowable deduction u/s. 43B - Held that - The only ground on which the disallowance of the payment of tax was made was the presumption of the Assessing Officer that the business was closed. After the order of CIT(A), there remains no dispute that the business was not closed but such business was leased out by the assessee and the rental income was assessed under the head income from business . In view of above, we do not find any infirmity in the order of CIT(A) - Decided in favour of assessee. Disallowance of Egypt tour expenses - AO disallowed the expenses mainly on the ground that there was no basis for the provision and the tour was actually conducted in the next year and all the expenditures were actually incurred in next year - Held that - when the assessee has promised to arrange the tour for its clients, sub commission agents and Engineers on the basis of their performance during the year under consideration, then persons who achieved the target given by the assessee have acquired the right to go on tour as per the Scheme of assessee. Therefore, once the assessee s clients, commission agents and Engineers fulfill the target given to them, the assessee incurs the liability to take them on tour to Egypt as per the Scheme. Therefore, the provision for Egypt tour is to be allowed in the year under consideration.- Decided in favour of assessee. Responsibility of claim of provision for Egypt tour - Held that - The assessee made the provision of ₹ 24,88,000/- while the actual payment made by the assessee in the next year was ₹ 41,37,880/-. In the above situation, the provision made by the assessee cannot be said to be unreasonable or excessive. In view of above, we direct the Assessing Officer to allow the deduction for the provision of Egypt tour expenses amounting to ₹ 24,88,000/- - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) for tax deduction at source.
2. Disallowance of notified area tax liability under section 43B.
3. Disallowance of Egypt tour expenses.
4. Disallowance of claim of assets written off.

Issue 1: Disallowance under section 40(a)(ia) for tax deduction at source:
The case involved a dispute regarding the disallowance of a tax deduction at source under section 40(a)(ia) of the Income Tax Act. The Assessing Officer disallowed a portion of the payment made by the assessee to Elecon Information Technology Ltd. (EITL) on the grounds that the tax was deducted under the wrong section, i.e., section 194C instead of section 194J. However, the CIT(A) ruled in favor of the assessee, stating that if the tax deduction was at a lower rate, the Assessing Officer could have taken action under section 201 of the Income Tax Act. The ITAT upheld the CIT(A)'s decision, citing a similar case where the High Court ruled that disallowance under section 40(a)(ia) cannot be invoked if tax has been deducted by the assessee, even if under the wrong provision.

Issue 2: Disallowance of notified area tax liability under section 43B:
The Assessing Officer disallowed a sum of notified area tax liability paid by the assessee based on the assumption that the business was closed during the relevant year. However, the CIT(A) found that the business was not closed but leased out by the assessee, with rental income assessed under the head 'income from business.' The ITAT upheld the CIT(A)'s decision, stating that since the business was not closed but leased out, there was no basis for disallowing the tax liability payment.

Issue 3: Disallowance of Egypt tour expenses:
The assessee incurred expenses for an Egypt tour as part of a Sales Promotion Scheme for clients, agents, and engineers. The Assessing Officer disallowed the provision made for tour expenses, arguing that the liability did not accrue during the relevant year. However, the ITAT ruled in favor of the assessee, stating that once the targets were achieved by the participants, the liability to arrange the tour accrued during the relevant year. The provision made for Egypt tour expenses was deemed reasonable, and the ITAT directed the Assessing Officer to allow the deduction for the provision made by the assessee.

Issue 4: Disallowance of claim of assets written off:
No arguments were presented regarding the disallowance of the claim of assets written off during the hearing. Consequently, this ground of appeal was treated as not pressed and rejected accordingly.

In conclusion, the ITAT dismissed the Revenue's appeal while partially allowing the assessee's appeal, providing detailed reasoning and analysis for each issue involved in the judgment delivered by the tribunal.